Declining inflation numbers should be a positive for the market since it leaves room for policy easing and stimulus, and declining raw material prices should help since China is "the largest importer of commodities", according to Bank of America analyst Ting Lu. But the rise in pork prices does have analysts watching food inflation numbers.

But this divergence in consumer and producer prices poses a challenge for the People's Bank of China. Societe Generale's Wei Yao writes, that the central bank will now have to figure out whether to keep a positive real deposit rate to help households and bolster spending, or if it should shift focus and help the sectors that are seeing their profits hit and that are being burdened by excess capacity (where demand is lower that what it can supply).

"We think the PBoC will try to strike a difficult balance by keeping benchmark interest rates unchanged and, at the same time, easing liquidity conditions to lower costs of capital indirectly," writes Yao.

For a few months now, concerns about deflation have picked up, and many are concerned about what it could mean for Chinese employment numbers. But Lu writes that "the possibility of sustained deflation in China is rather small and falling commodity prices are largely good for China."

Industrial production likely disappointed because the scale of policy easing has still been small and because there is a lag in the impact of such easing on an economy, according to Lu. Moreover, market confidence has been weak given Beijing's mixed messages from Beijing on its property curbs, and because of poor weather in July.

But without a rebound in industrial production numbers Chinese GDP could slow more than expected to 7.4 or 7.5 percent in the third quarter.

This isn't all bad though. With declining inflation and industrial production Lu expects an "imminent 50 basis point reserve requirement ratio cut" with a total of three before the year-end, and two 25 basis point int rest rate cuts this year.

FAI accounts for over 50 percent of GDP and is an all-important measure of government spending. The breakdown of FAI showed that infrastructure investment is picking up, but has been "too modest to offset the the drag from the housing sector," according to Yao.

But the weaker data doesn't mean that Beijing is unlikely to flood the market with the 4 trillion yuan stimulus like it did in 2009 and the modest pick-up in infrastructure investment is unlikely to be enough to boost economic growth. Given all this data, SocGen's Yao has reduced her Q3 GDP projections to 7.7 percent YoY, down from 8 percent and full-year growth to 7.8 percent, down from 7.9 percent.